Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.
Lesson Circuit breakers
Market-wide circuit breakers
Learn about circuit breakers and how they help moderate market volatility.
A "circuit breaker" is an automated procedure implemented by stock market exchanges that are designed to moderate market volatility and investor panic by temporarily shutting down trading in a market. Most major stock exchanges, including the TSX and NYSE have circuit breakers.
The Toronto and New York exchanges have coordinated their circuit breakers since April of 2013. When the S&P 500 index falls to a certain level based on the previous day's closing price, the market will temporarily halt. These halts are divided into three levels:
- Level 1: If the S&P 500 index falls 7%, trading is halted for 15 minutes.
- Level 2: If the S&P 500 index falls 13%, trading is halted for 15 minutes.
- Level 3: If the S&P 500 index falls 20%, trading is halted for the remainder of the trading day.
However, if a level 1 or level 2 threshold is hit at or after 3:25 pm ET, trading will continue. It will only halt after 3:25 pm if the index hits a level 3 threshold.
In the event a circuit breaker is triggered, all investors (including Questrade customers) will be unable to make any trades on the impacted market for the prescribed time period. The outage is at the market level and not due to a technical issue at Questrade.
Related lessons
Want to dive deeper?
Stocks 201
Understand how ECN fees work, different order routes, short-selling, and other intermediate concepts when investing in stocks.
View lessonRead next
Advanced charting and studies
Understand the important concepts in investing to get you started on the right path.
View lesson
